Earnings Call: Q1 2019

Feb 6, 2019

Good day, ladies and gentlemen, and welcome to the Ashland Global Holdings Inc. 1st Quarter Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr. Seth Mrozek, Director of Investor Relations. Mr. Mrozek, you may begin. Thank you, Sherry. Good morning, everyone, and welcome to Ashl first quarter fiscal 2019 earnings conference call and webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wilson, Ashland's Chairman and Chief Executive Officer and Kevin Willis, Senior Vice President And Chief Financial Officer. We released preliminary results for the quarter ended December 31, 2018, shortly after 5 pm Eastern Time yesterday, February 5th. Additionally, we posted slides to our website ashland.com under the Investor Relations section and have furnished each of those documents to the SEC in a Form 8 K. As a reminder, during today's call, we will be making forward looking statements on a number of measures including our financial guidance fiscal 2019. These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ interiorly from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please refer to yesterday's slide presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements. Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non GAAP financial metrics. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of the ongoing business. Non GAAP measures should not be considered a substitute or superior to financial measures calculated in accordance with GAAP. Most directly comparable GAAP measures as well as reconciliations of the non GAAP measures to those GAAP measures are available on our website and in the appendix of yesterday's slide presentation. With that, I will turn the call over to Bill. Thank you, Seth, and good morning, everyone. Thank you for calling into Ashland's first quarter fiscal year 2019 earnings call. In May 2017, we shared our strategic vision to become the premier specialty chemical company That plan had 3 core financial performance targets, driven by 7 core operating levers. This is organic year over year adjusted EBITDA growth excluding any benefit of currency and acquisitions. In addition, we have improved specialty ingredients adjusted EBITDA margin year over year in each of the last four quarters. In fiscal year 2019, Q1, we continued those trends. In the quarter like other companies, we saw some choppy market conditions and experienced unfavorable foreign currency translation. Still, we delivered solid gains relative to each of our 3 core financial deliverables. More specifically, we achieved significant adjusted EPS growth. Adjusted EBITDA margins by 100 and 40 basis points. We improved our Q1 cash flow over the prior year consistent with our outlook While beginning with Specialty Ingredients, organically, we grew sales by 3%, excluding the impact of FX, and the Colgate Product reformulation that we outlined on our 4th quarter earnings call. To do so, we continued to drive double digit growth in Pharma. We demonstrated strong growth in our innovative bio functional ingredients for hair and skin care applications. We grew the Pharmachem business as we implemented our new market strategy for the business. And we demonstrated discipline pricing plus share gains for our adhesive products. The Specialty Ingredients team also improved gross profit margins year over year by 20 basis points in spite of substantially increasing plant absorption. We also succeeded in driving price over raw material cost inflation, Now as you will recall, we have made steady progress towards pricing through rapid and dramatic raw material price increases which we experienced over the last year. New sales incentive practices, along with comprehensive account planning and value selling training. The result is that we drove price above raw material inflation in the quarter in the context of continuing and lingering year over year raw material inflation. And we expect the impact of our pricing actions combined with the impact of falling oil prices, which we believe will begin to benefit us in the remainder of the fiscal year. To augment these actions, the team is achieving strong results from our cost reduction program. As you will recall, this is the effort we kicked off last year. And from a specialty ingredients perspective, this program had 2 core objectives. The first was to enable the specialty ingredients organization to become leaner, more nimble and competitive while increasing our ability to accelerate growth also included reducing fixed costs by approximately 200 basis points to accelerate our achievement of our targeted 25 to 27% adjusted EBITDA margin target. In the quarter, Specialty Ingredients realized 150 basis point reduction in SG And A as a percent of sales. To be clear, the cost reduction program is delivering and will be completed margins reduced SG and A, which resulted in a 7% improvement in adjusted ASI EBITDA. And that represents 120 basis points improvement in EBITDA margins. Now if you assume constant currency, adjusted EBITDA growth would have been 9% for ASI in the quarter. For all of Ashland, adjusted EBITDA increased 8 SG and A for the company was down $9,000,000 compared to the prior year, and adjusted EBITDA margins were also up 140 basis points year over year. And leveraging these earnings gain in combination with disciplined capital expenditure programs we improved cash flow performance year over year. In quarter 1 fiscal year 2019. And these gains have given us confidence to reaffirm adjusted EBITDA adjusted EPS and free cash flow target outlooks for As we head into Q2, we expect FX and demand in certain industrial markets to remain soft. But rather than focus on this, we are focused on executing on the leverage we can control. More specifically, within Specialty Ingredients, we expect aggregate top line gains to be rather limited in the quarter due to negative FX and continued softness in several of our industrial markets. But that said, to ensure we deliver on our targeted EBITDA dollar and margin growth objectives, we we are committed to drive positive gross profit margin and dollar growth by continuing to drive substantial mix improvement through innovation and new product introductions. We also intend to reduce manufacturing costs resulting from our asset utilization program, And we also expect to augmenting specialty ingredients gains, we expect Lima to return to year over year earnings growth in the quarter, with our planned Q1 shutdown behind us. And of course, we expect lower SG and A as we drive cost reductions across the entire organization. We expect that run rate to increase to nearly $70,000,000 by the end of Q2. So combined as a company, Ashland remains on track for the guidance we provided at the end of December. As part of this, we are forecasting adjusted EPS In addition, it is important to note that we continue to make strong progress to stay on track for the planned sale of the composites business and the Marl BDO facility. The $120,000,000 of cost reduction and the planned sale of the Composites business and Marl VDO facility. And with that, I'll turn the call over to Kevin. Thank you. Thank you, Bill, and good morning, everyone. First, let's start with Ashland's results in the first quarter. Sales in the quarter were $576,000,000, down 1% from the year ago period and inclusive of negative two points from unfavorable currency Adjusted EBITDA in the quarter was $100,000,000 up 8% year over year. In the quarter, we reported a U. S. GAAP loss from continuing operations of $1.14 per diluted share. However, on an adjusted basis, we reported income from continuing operations of $0.14 per diluted share compared to $0.03 in the prior year. This compares to our outlook that we provided at the end of the timber of $0.05 to $0.15 per share. Remember that results from continuing operations includes the results of our Specialty Ingredients segment plus our BDO facility in Lima, Ohio, as composites and Marl are now being reported as discontinued operations. Free cash flow during the quarter was negative $42,000,000 compared to negative $52,000,000 in the prior year These amounts include $19,000,000 in restructuring costs in the first quarter ago period. Our effective tax rate for the first quarter after adjusting for key items was 29% compared to 41% in the prior year period. Now for an update on signed a definitive agreement with INEOS Enterprises to sell the business for $1,100,000,000. We are working with INEOS to close the transaction by June 30, We continue to expect to use which will get us to our Last night, we reaffirmed our outlook for the full fiscal year, except for an expected change to the full year effective tax rate, As we've gained more clarity around the full implementation of tax reform, we do expect a slightly higher rate this year and going forward. Consistent with fiscal 2018, we plan to update these outlook ranges throughout the year As we move closer to the planned divestiture of Composites and the Marl facility, we continue to evaluate the presentation the business and its results to our investors and other constituencies. Our objective is to provide as we complete our transformation to a pure play specialty chemicals company. We continue to evaluate the options and expect to make Thank you. Questions. Our first question comes from David Begleiter with Deutsche Bank. A quick question on EPS. You did cut you did raise your tax rate guidance, but you didn't change your EPS guidance. How did that work out? Dave, at this point, we're confident with our full year EPS range. And we do think that there's going to be a modest increase in the overall tax rate. It's pretty low to begin with in this increase. We'll still keep in the range, we feel like. So we're very comfortable with the range as it is. And I would just add that, again, in the spirit of within reason there, we expect that we will continue to work operational levers when on the business and the corporate cost structure to follow through on our commitments, regardless of the fact that there is, I will say, a little bit of an increase in the tax rate. Got it. And just on ASI bill, Kevin, can you break out the 3% organic growth between volume and mix price? And how would you expect that to trend as you get past through Q2 into the back half of the year? So from a volume standpoint, and we reported on this, there was not significant growth or what. There really wasn't growth. From a revenue standpoint, excluding FX, we saw a growth in our business. And we expect that as we move into Q2, we'll have a bigger dynamic related to FX. That will get better from a comparative standpoint, assuming that exchange rate stay the same going forward and into Q3 and Q4. And so again, we started with, essentially a 2% 2% to 3% organic growth rate for the ASI business at the start of this year. And that is our expectation as we move forward. And as I would also focus part of what we're trying to do in that is enhance the mix of products that we're selling so as to improve our gross profit and obviously drive a higher level of earnings as well as on EBITDA growth rate. So I think our outlook other than we'll say FX is very consistent with what we put forward at the very beginning of the year. Clearly, pharma was a big driver in the quarter, obviously helps mix as that is our highest margin business from an end market perspective, we called out adhesives as being, as also being a really strong performer in the quarter and they were those two businesses were big contributors. And I think it's also worth noting that it in Personal Care, aside from the oral care situation we've already talked about, we saw some really nice gains, particularly skin. So those all serve to really help us put together a pretty good quarter. Thank you very much. Our next question comes from Christopher Parkinson with Credit Suisse. Hi, good morning. This is Kieran on for Chris. Good morning. Personal Care saw mixed quarter with the impacts FX and the loss of the Colgate business, but some of your customers have also reported pretty strong quarters and outlooks. As we think about normalized growth in personal care. Can you discuss like how you think about that for the rest of the year? And then any initiatives you've taken to replace Colgate And Trust Business Loss? Thank you. Certainly. And as Kevin mentioned, we did have a strong performance in Q1. I'll say in Skincare, we also had growth in other parts of our consumer business or personal care business. And we are targeting essentially a 4% growth rate just as we had last year. Across the business, we've highlighted the negative impact of the Colgate loss or their reformulation really, and that would go against that 4% in this year. At the same time, I would say that we're really driving that richer mix. So focusing on improving the profitability of the business and And so we're targeting that 4% growth overall, excluding the Colgate and really targeting a much rich or mix as we move forward. And that's really driven by technology and new introductions. A lot of our bio functional ingredients Yes. And that 4% top line gain is really accompanied by a much stronger profitability gain because of those mix shifts. Especially in areas like biofunctionals and other skin care applications. Great. And then I guess just touching quickly again on pharma, You had another strong quarter. A lot of that also was helped by like the capacity expansions would seem to have annualized this point. How should we think about normalized growth in the pharma business going forward? And then what key levers could you pull to accelerate growth as we go through the rest of the year? Thank you. We certainly have had a strong run as it relates to our pharma business. There was great amount of pent up demand for the product. And we've seen the benefit of that in each one of the quarters as we've had the capacity. What I would say though is we've also seeing that our customers are now that the product is more readily available is interested in expanding the number of applications we have and we're introducing new Benecel and new Klucel grades. So between technology and our overall position in the market, we are focused on seeing, if you will, gains that are at least 5% without foreign exchange. And that would be for the remainder of the year and really as we continue to move forward. If you look at the look at the pharma business historically, 4% to 6% is what you would typically see over the long run for that business 4% to 6% year over year growth. And we fully expect that to be the case as we move forward. So that would certainly our expectation for the rest of this year. Great. Thank you very much. Thank you. Our next question comes from Jim Sheehan with SunTrust. Good morning. Can you talk about the tailwind you expect to get from raw materials? You mentioned that you're starting to see raws ease a bit and this could help your margins. How would you quantify the benefit to gross margins in ASI going forward? Right. Great question. And it is important to note that actually in our Q1 of this fiscal year, if you look at the the price of oil and we'll say that's one of the primary drivers of our raw material costs that actually the price in Q1 was above Q1 last year. And so when we talk about delivering price over raw material inflation, we're doing so in the context of that sustained raw material cost inflation. Now that being said, we know that the current price for oil is substantially below where it was in Q2 last year and below where it was on an average basis in Q1 for us. Now it takes roughly a quarter for that to roll through into our cost of goods sold because it rolls through our inventory. And so with that, we would expect as we get into the second half of the year, to see strong benefit from that, assuming oil prices remain the same. And that's good because last year, as you know, we worked hard to catch up with raw material inflation. Now we need to make that a lever that's more positive in terms of contributing to our year over year growth. And just, in round terms, you could estimate roughly $1,000,000 a year for a dollar lower price in oil. But again, I would caution you to understand that we actually saw an increase in Q1 over last year. And it takes a little while for it to roll through. So you may think of that more in terms of kind of a half year benefit as opposed to a full year benefit. You need to do that based on the weighted average of crew during the quarter as well. And maybe that goes without saying, but it's not a point in time kind of thing. It's really focused on average costs in the quarter year over year in terms of doing that calculation. Very helpful. And also could you comment on where you see the health of primary demand versus any signs of destocking in some of your end markets It seems like, certainly in this last quarter, your performance exceeded that appears that maybe we're suffering more headwinds than you did. Maybe you can discuss, why you think that might be the case? Well, I think the team's done an outstanding job of going there and selling the value and selling the technology, innovating. And ultimately, we believe gaining share is result of that. It's hard to estimate and I really don't want to move to the destocking word if because I believe that we see a demand which is consistent with our customers' consumption. Yes, we can have some short term effects as maybe they become more conservative with their inventory or opposite build some over time. We look at that as as something that happens. And we can't control that. So we're instead going to focus on the things that we can control. And that is related to share shift, innovation, pricing, managing our manufacturing facilities and costs. And lowering our SG and A. So I think that's a broader answer maybe than you were looking for specifically on the subject of destocking. But I wouldn't point to that as a word that is guiding our results or guiding our thinking. And I think a really good example of the team doing a really nice job is in our coatings business. I mean, coatings was relatively flat year over year, but if you look at some of our large coatings customers who have reported results, clearly, some of them have struggled a bit, And in spite of that, the team was able to really make up a lot of what think could have been, could have been a difficult quarter for coatings by just getting out there and really moving the product selling the value. And I think they should be applauded for that. Yes. And just to add to that, Tom, if you were to look at our coatings by region, you'd see that our coatings in North America was not much different than the numbers that you heard reported still what we did was we focused in this particular quarter. In this case, we had double digit growth in rest of Asia, in our coatings business. And that helped us to offset the dynamic in North America. So not trying to go into the very specifics of each region, but as we run the business, we focus if it's not strong here. We're going to focus on that. And if the top isn't going to be as strong, then we're going to do other things that are below the line. Thank you. Our next question comes from Jeff Zekauskas with JP Morgan. Thanks very much. Hi, good morning. I imagine you've benchmarked ASI versus, your very strong competitors. When you look at the really efficient companies, what's their SG and A ratio? Or is there an SG and A ratio that you target in, specialty ingredients when you get to a full level of efficiency? Sure. So we do extensive benchmarking. And we discuss that with our board, of course, and as you realize it, it can be a little bit challenging because companies don't match up exactly However, we do have a strong perspective on it. What I would say is that we are very focused on executing $120,000,000 cost reduction effort right now. We have to get that done before the end of calendar 2019. And that's our focus. And we believe that that will get us to the 25% type range for ASI, which is the lower part of the range that we put out there from a target standpoint. And we said we would like to be 25% to 27%. To move up that curve, obviously, to achieve the additional two points, there's really three ways you can do that. You can do that growth and volume leverage, you can do that through mix and technology, and you can do that from fixed cost reduction. And I believe that we will see a continued focus on all three of those. And so I think you will see between the volume leverage and continued programs, which really have been identified and are being implemented as part of what we're doing today, but won't hit before 2019 to help us lower our SG and A is a percent of sales. So I hope that gives you a sense without throwing out a very specific number it. And Jeff, just to maybe get a little more specific on the number itself, as as you're aware, most of our investors are aware, we've got about 3.5 points of SG and A related to deal amortization that that's running through the numbers. And if you set that to the side, by the time we're done with this current program, the business should be running at about 16% sales, maybe a little better than that. A lot of that depends on what kind of growth you bake into the top line. But, that's more or less where we'll be once this program is fully baked in. I think if you, again, comparisons can be tough and beauty is often in the eye of the beholder. But We feel like that, that puts us in a pretty good spot relative to a number of the peers. But as Bill said, the objective is not to be static. The objective is to continue to improve and to do so, by really executing on all three of those levers that Bill indicated. I think we have to execute on all three on a continuing basis. Status quo is never going to be good enough. Okay. Thank you for that. And what was the $30,000,000 in unrealized securities losses? Yes, I'll take you through that. So As you may recall, we entered into a settlement arrangement with a couple of our large insurers related to our asbestos liability. And we took the majority of the proceeds from that settlement and invested those in what we refer to as an asbestos trust to basically help offset the cost of our ongoing asbestos liability. And those proceeds are invested much like a pension trust, in the combination of risk assets and fixed income approximately sixty-forty. And that trust experienced the same kind of downturn during the December quarter the rest of the markets did. That's really that's really the genesis of that, of that $30,000,000. If you look at kind of where we are right now, the trust is, I think, has recovered nearly half of that. So far this month, just as the market said, have recovered. And this is related to a new accounting pronouncement that we have to comply with, which previously those unrealized gains and losses ran through other comprehensive income, but now they actually have to run through the P and L. And many companies are experiencing the And so you're going to see more discussion around this and more transparency around it, which may be the point. But we'll be doing the same thing and we'll call that out specifically each quarter, whether it's a gain or a loss on those assets. Okay, great. Thank you so much. Sure. Thank you. Our next question comes from John Roberts with UBS. Thank you. Do you eventually merge the now smaller INS segment into ASI? Or can you do swaps on BDO with INEOS so that the I and S external sales and earnings go away at some point? Yes, I think what we are looking at doing here is, of course, as we complete the sale of Composites and Marl, we're looking at the best way to not only manage the business, but also report the business to provide, the insights and clarity that you're looking for. So I would say that we will blend it into our business and then we will share more about our business in total we move forward. Yes. And we're still in the analysis phase of how we're going to report going forward, but we're obviously pretty far down path. We've got some time to think about this. And as I indicated in my comments, we should be prepared to make a decision on this and go public with that in the not too distant future. And then I know you don't report regionally, but are the margins substantially higher now in the U. S. ASI business because of the self manufactured BDO and lower in the international because of the purchased BDO or is the market is the pricing that you've assumed in your transfer pricing or whatever you've done in your restated results essentially approximate market. So there's no difference. So the from a From a BDO perspective, the captive part of our BDO production that we use as a raw material is all that manufacturing is done in Calvert City, Kentucky and Texas City, Texas. And those products, which are primarily powders, are then shipped around the world. So the margin profile virtually the same everywhere. I'd add to your question. At least as I heard it is, the transfer pricing that we have of BDO as of material, was that one of questions as well? Yes. Close enough to market or is there a large customer discount that's really big that you apply to your own internal use? We transfer at cost. At cost. Okay. Thank you. Thank you. Our next question comes from John McNulty with BMO Capital Market. Yes, thanks for taking my question. With regard to the improved pricing practices that you were highlighting, I guess how much of it would you say is tied to more appropriately pricing for value versus just passing through the raw material costs more effectively? And I guess the premise for the question is can we continue to see pricing push higher if we see raw materials start to level off or subside? How should we be thinking about that? Yes. So I would say that, of course, we recognized over the last year that we had a serious issue to contend with in term of raw material inflation. But if you go back to our Investor Day Materials, we actually identified, the pricing and the value pricing, not only the skills, but the ability to differentiate, leverage our differentiate and drive technology, a core component of ultimately improving the growth and margins of the business. So I would say that we look at it from a value standpoint and the value that we provide to our customers. And of course, It's our customers, and we need to recognize when you're in an inflationary period, as we had last year. And that helps to you will expand the urgency associated with that. But I would say that we continue with our our focus on innovation. We continue with our value selling and negotiating practices, training, we have better account management tools and we have changed sales incentive program. So we're on continuing to drive and make sure we get the full value from the products that we're providing to the marketplace. And that's independent of the fact that we see some of our raw materials pricing getting softer. Yes, we would expect to continue with the pricing programs that we have. And it's really consistent with the mix shifts that that we're driving in the business. And those mix shifts tend to be levered toward higher value, high value products and price comes along with that. Great. Thanks very much for the color. With Seaport Global Securities. Bill, I was wondering if you could walk through the trends that you're seeing in some of your key ASI markets as we kind of walk through the October, November timeframe into December January, particularly interested in the trends that you were seeing in personal care and in coding over those 4 months? Right. I think the trend that we saw was consistent with our end of quarter results, we didn't see a big drop off. We didn't see a big pickup at the end of the quarter, I'd say that we saw fairly, fairly level demand relative to our ultimate results for the quarter. All right. And then I was also wondering if you could give a little bit more detail on the gross margin performance in ASI, it was pretty decent even if the volume growth wasn't great. And just wondering if you could talk about the interplay among factors like mix, pricing versus raw materials and fixed cost absorption or asset utilization. How can we expect those pieces to trend in terms of the impact to gross margin through the rest of fiscal 'nineteen? Right. So we've discussed, that even though, sales were from a volume standpoint, was relatively flat that we actually did see an improvement in volume and mix in the quarter. We saw pricing that was above raw material costs. We expect that that will expand as we go forward in the year. We did see a positive impact, absorption within our manufacturing facilities. That being said, we then saw a negative impact of fairly substantial one as it relates to FX. And so when you put those all together, that's the end GP that we had in the row margins. It's always great to say it, but if it weren't for FX, I think you would have seen GP really shine in terms of percent, but in the end, it's all about the numbers. And we did drive GP gains both on a dollar and on a basis point basis, even with that negative FX. Yes. And I think if you look at the various components, there was no, there was no, what I would call stand out necessarily amongst them. It was each of those components contributed. And that really helped to make for a pretty solid quarter. Yes. So when we look forward and we think about our plans for the year, we'll see some of those the different quarter being a little stronger or a little weaker, but essentially it's those levers. It's those same levers and we're working all of them to make them all positive this year. And that's how we'll provide the earnings growth that we were focused on that plus, of course, the SG and A cost reduction. All right. Thanks very much. Thank you. Our next question comes from Rosemarie Morbelli with G. Research. Good morning, everyone. You mentioned that some of your industrial markets were soft and I was wondering if you could give us a little more details on that as well as the social or the location rather of the growth in coatings in Asia considering that China has slowed down? Sure. Sure. So, when you look at our business, you can see in the Performance Specialty area, that's one where it it's a mix of industrial type applications and that was down, relatively weak. We we saw some good growth in construction and energy. So that helped to offset the fairly neutral performance that we saw in coatings, which we've referenced before. And And when I was referring to the growth that we saw, it was in the rest of Asia. Actually, we did see China from a revenue standpoint get stronger year over year. And that was driven primarily by substantial gains in pharma and skincare. So So we did see gains in China. We also saw revenue gains in rest of Asia, which were particularly strong. And the way we think mean, rest of Asia is literally all of Asia except China. And so that that's a pretty big that's a pretty big region. But, it's inclusive of India, Japan, etcetera, etcetera. And so we just saw really, really nice growth there, frankly, in most of the end markets that we sell into in those in that region. Okay. Thank you. And then you are focusing on the high value products. Could you talk about the percentage of the overall ASI that is high value and what are your targets? And then linked to that, if you could talk about what you changed in the sales incentive program. Sure. So just to answer your questions, the great majority of what we sell within ASI, we believe, is very high value and differentiated materials. So I would start there. Now of course, We're trying to expand that and make sure that we stay stronger and more relevant, going forward from continued innovation And so with that, we target 30 percent of our sales to come from new products and that with a higher margin line, we have focused, on moving more and more resources towards specific customer innovation activities And just to put in perspective, we'd have what we call TSR, which are service requests, and those are really reformulating product to work better in an application on our customer's line. And we have over 1800 of those that we've been working through our system. So That's a core part of what we do. And it's a bit different than what we've done in the past. It's it's having a very nice impact. And from a sales incentive standpoint, this is something that we put in place last year. Basically, what we said was that we would reward our sales team based upon their commercial contribution and that could come from driving incremental volume and the profitability related to it. To improving the mix and the profit profile that comes from that, from pricing relative to raw material inflation, And then also factoring in the benefit of incremental absorption that comes from delivering revenue over and above their plan or conversely if they are short on their plan. And so with that in mind, the sales team has the visibility to see the activities they focus on directly impact their incentive compensation. Thank you. Very helpful. Thank you. Stated. Our next question comes from Lawrence Alexander with Jefferies. Good morning. This is Dan Rizzo on for Lawrence. With the changes in sales incentives, has that increased or increased, sorry, has that increased or decreased sales force turnover over the past few months or past year? No, I don't think that has if anything, I think from a sales team perspective, I think it's been a real positive in the respect that they have visibility and can control and see the impact of their their work. And we're giving them tools to better understand that and also to sell the higher value materials through our innovation program and so forth. So I have not noted any turnover, if you will, or I shouldn't any, but, trends in that. I think we've had, had strengthened that area. Yes, regrettable turnover in Salesforce has been pretty low. And And one of the changes that we've made is to really make the sales incentive process much more individualized than it's been in the past I mean, there's still some team based incentives out there because we have teams that service large customers. But if you look at the opportunity available to our Salesforce, we've actually given the sales force much more control over their destiny in that regard, which frankly, I think helps with the mix shifts that we've seen, along with some of the tools that we've been able to provide them, We're a salesforce.com company as our many. And we've really improved the overall look and feel of our sales dotcom, front end makes it much easier for salespeople to use and much faster for them to to do their job, so they spend more time in front of customers, less time inputting stuff. And we've also changed our commercial organization and flattened it so that there's clear line of sights to the particular markets and better market ownership. And I believe that the, if you will, esprit de corps and the leadership that exists is very strong in those in those markets and overall in the commercial area. And that's helping to drive a more, I'll say a a better winning attitude and it's coming through in terms of our results and most particularly in pricing as we're referencing right now. Okay, thank you. And then, you mentioned that, there's an extension of expansion of application for some of your farmer products And there was kind of pent up demand. I was wondering if additional capacity is going to be needed, maybe not this year, but in 2020 2021, to meet the expansion and capacity. I'm sorry, sorry, expansion and application. Yes, I don't think in the periods of 2020 or 2021, we'll have those issues. We've really done a tremendous debottlenecking in some of our cellulosics areas that, will really give us a lot of headspace. In Klucel, we had a major addition to capacity and And it takes a while to put new capacity in place. So as we think about our strategies going forward, we will an eye to that. And it may make sense for us to engage in some expansion activities, debottlenecking or fundamental expansions in Klucel that may be relevant for the window outside of what you're referencing there. At the same time, we understand our commitment to deliver our cash flow and to do that, we've targeted CapEx plus change in working capital to be at 6.5% of sales or less. So as I mentioned, that we may do some things over time to further expand our clue cell capacity. That's a longer term view, and it wouldn't change our fundamental outlook on spending and cash flow. And we manufacture Cluesell at our Hopewell, Virginia facility. And in terms of the last expansion that we did, that is at Hopewell. And to the extent we need to make further expansions there, which will obviously, do proactively needed, they would also be at Hopewell. So you're really leveraging an existing facility and existing footprint when you do that, which While it takes CapEx to expand, obviously, it's much more efficient than if you had to do a whole new footprint. Because you're using the same facility, does that not make sure that you don't need to inspect that new capacity in? Like if it's just a brownfield expansion of an existing line, then there's not an additional qualifications that are needed, correct? Well, there are qualifications and we'll work through a number of those last year on the new capacity. I think what Kevin's seeing is that we have the footprint and the ability to leverage a base infrastructure to add additional lines dryer's components of manufacturing, which would increase our output without having to build a brand new plant infrastructure, which would clearly an be much more expensive. All right. Thank you very much. Sure. Thank you. Our next question comes from Mike Sison with KeyBanc. In terms of your outlook for 2Q, not a lot of companies are which is calendar first quarter seeing any growth and looks I think you guys said you could see strong year over year EBITDA growth and positive organic growth. So can you maybe flush out where and why you can see that growth is most are struggling a little bit here in the calendar first quarter? Yes. So we in those same markets, and what I would say is that there are areas where we see continued strength. We think that the pharma business will be a continued driver of growth We think Pharmachem will be a continued driver of growth and energy can be. We've had good growth in hair care that we think could help us as we move forward. So there are a number of markets that can help to offset some of the weakness that you might see in some of the markets that you're referencing. And And so that's why we're commenting and projecting that revenue growth, I don't think will be the big driver of earnings growth for us in Q2. It'll be back to price mix cost within running our plants, SG and A reduction. And to the extent that the markets show a more favorable demand dynamic, that would be great. But we're not counting on the markets to have some substantive change, positive change to meet the targets that we're setting for ourselves in the quarter. And Mike, we just we see a lot of resilience in the business due to things that we can control, the things that we can drive. And the only thing I would add to Bill's commentary other than that We would also expect the Adhesives business to be a nice contributor in Q2. That's a business that has grown consistently over the years, kind of mid single digit. And we would expect, certainly on a full year base for that to continue to be the case this year. But on an overall basis, we're trying to drive the things that we can control. And part of that is to continue to have mix shift. And areas, areas of the globe where there are opportunities. We're going to capitalize on those. We're going to take advantage of those opportunities and grow where there is growth. Great. And then, you've tended to give us sort of a view by market. And I was wondering if you think about 2019 by product, cellulosics, adhesives, PVP, pharmacab, what your outlook looks like? And is that when you think about giving us more data as you noted as you as the year unfolds, is that an area where it could be more helpful for us to think about the growth by product? So that's it's a great question. And it's an important element of how we look at the business because we focus our solutions to be relevant within specific end markets. And we talk a lot about those. At the same time, as we've discussed, we do have several of these major product platforms. And so as a company, we do drive across both of those dimensions. And we have asset optimization programs. So we look at the relative profitability and the things that we can do to enhance the profitability, shifting the mix, adding capacity where we need to managing inventory and other areas. We do that as part of our executive leadership team and we review that monthly. And I do think that as we talk about the business going forward, I think we will share more of that with you. I don't think that that would drive how we would report our results in the aggregate because we tend to focus more by markets and the kind of value proposition that we have. We are planning for growth in cellulosics this year. We're planning on growth in Pharmachem. And really across across all of the platforms that you referenced there. And to do so, we're going to have to innovate and we're going to have to drive growth in markets, which are a little stronger to offset those which are a little softer. Great. Thank you. Thank you. And our final question comes from Dimitri Silverstein with Buckingham Research. Yes, Dimitry. Good morning. Are you still on mute, Dimitry? Sorry, Dimitry, we can't hear you. You're taking that mute thing really seriously. Now we can't hear you still. Operator, can we connect with Dimitry or no? Unless he unmutes his line. His line is open on our end. Okay. Why don't we go ahead and wrap up call operator. Yes. He may just have a bad connection. Okay. Speakers, I'll turn the call back over to you for any closing remarks. Thank you very much. Thank you all for your time this morning and for your interest in Ashland. I hope everyone has a great day. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect and have a wonderful day.